Bank accountability

The Governor of the Bank of England, Andrew Bailey, has faced criticism for comments he made at the Treasury select committee this week. He suggested that workers should not ask for a pay rise, warned of “apocalyptic” global food price rises, and agreed that he felt “helpless” to control inflation. The remarks have been described in turn as out-of-touch, alarmist, and troubling.

The Bank certainly should not feel helpless about inflation. One of its central duties is to keep price rises low and stable, and if it does not think it can do that, then many will ask what the point of it is. True, some trends are out of its control. But it is not good enough to blame the war in Ukraine or lockdowns for all our economic woes. The Bank’s critics claim that groupthink on the rate-setting committee resulted in complacency about the consequences of massive money-printing, such that it was unable or unwilling to correctly identify the scale and longevity of the inflation threat.

The case is surely quite strong now for further increases in interest rates, notwithstanding the effect that might have on the government finances. Given that the Bank has been accused of effectively monetising government debt, a series of rate rises could be a good way of showing that it is indeed as independent as it claims.

But politicians, too, need to be much better at holding the central bank to account. Many of them have lost interest in macroeconomics, despite the power that the Bank possesses to determine the course of millions of lives. The public should not have to take central bankers’ word for it that they are doing their job properly. They are not the “masters of the universe” that they sometimes imagine themselves to be.